Deloitte report on food and beverage price trends

Food and beverage 2012
A taste of things to come

Deloitte's Report March 2008 (Via Farm online)

It has never been tougher to build and sustain a successful food and beverage business than it is today. Food and beverage companies face an array of increasingly complex issues and questions—and the manner in which they choose to respond will shape the future of the industry for many years to come.
Over the past 12 months, the Food and Beverage team at Deloitte has carried out interviews with board-level executives at more than 90 leading manufacturers, retailers, and food service companies from around the world. This research provides unique insight into the current challenges facing the industry. The process started in the United Kingdom, where, in addition to industry leaders, the team spoke to relevant government bodies and undertook a survey of over 1,000 consumers. What you are reading now is the result of the team’s global research, presented for the first time.

Just as the results for this global report were being finalized, a new and powerful trend started to loom front and center—the dramatic rise globally of base food prices. This has introduced an entirely new set of questions that industry executives will, in all likelihood, need to grapple with in the coming years. To start that dialogue, the report opens with an analysis of and viewpoint on global food price trends.

...Impact on consumer behavior
Higher relative food prices should lead to increased purchasing of lowpriced private label and discount products and shopping at low-priced retailers. It should also lead to a shift away from eating meals outside the home. These trends appear to be under way. However, increased energy prices and slower overall economic growth also contribute to these trends, making it difficult to identify the impact of higher food prices.
In poorer countries, the rise in food prices is far more serious to ordinary consumers. Already there have been violent disturbances in some countries when subsidies have been reduced. In China, a leading hypermarket’s promotion of low prices caused a riot as customers fought to get the discounted items. In addition, sustained higher food prices in emerging markets will necessarily lead to reduced spending on non-food products.

...The silver lining
We tend to see increased food prices as a bad thing, and for poor countries this is almost certainly true. But there may be a silver lining for affluent countries. One negative byproduct of low food prices is that consumers are not constrained in the purchase of food. The result has been a high calorie diet for relatively sedentary people. The ultimate result is an epidemic of
obesity. Higher food prices might restrain consumption. On the other hand, caloric intake is not the only problem. Today, the typical person in the United Kingdom consumes roughly the same number of calories as he or she did 200 years ago. The principal difference is that the consumer back then led a physically challenging existence and required those calories just for
subsistence.


...The future of food prices
With the exception of bio-fuel subsidies, the factors that have caused a steep rise in food prices are not short-term phenomena. Strong global economic growth, rising incomes in emerging countries, elevated petroleum prices, and climate change are not likely to go away anytime soon. Subsidies for bio-fuels are dependent on the whims of governments, particularly the U.S. government. If food price inflation were to become a serious political issue in the United States, political support for bio-fuels might diminish. So far, this hasn’t happened.
Thus, we may experience several years in which food prices will increase in relation to the prices of other consumer goods and services. This is unusual but not entirely without precedent.
In the longer term, if market forces are permitted to function, food production will expand, land efficiency will increase, and prices will ultimately come back down. Yet this involves a big “if.” Agriculture is one of the last bastions of intense government involvement in, and distortion of, the market. In rich countries, farmers have political clout that is out of proportion to their numbers, often due to a romantic notion of their role in society. In poor countries, urban consumers usually have more political clout, typically because urbanites can more easily create violent disturbances than villagers...